Many traders have noticed that Ether’s (ETH) price has been outperforming Bitcoin (BTC), for months. The ETH/BTC ratio has risen more than 230% since 2021, and recently reached a new high of 0.089 BTC on December 9.
Coinbase offers the ETH/BTC pair. Source: TradingView
For perspective, Ether’s current market capitalization of $490 billion is 54% of Bitcoins $903 billion. This ratio was just 15% at the end of 2020, so it’s safe to say that there has been some “flippening”. Although it may not be as impressive as Ethereum-maximalists expected, it is still quite respectable.
Analysts should not analyze the reasons for the move, or predict the outcome based only on loose expectations. Instead, they should examine the market structure of each coin separately.
How does the long-to-short ratio of pro traders compare to the futures market premium? These metrics are crucial to determine if a movement is strong enough to continue.
The futures premium favors Ether
Although quarterly futures are preferred instruments by arbitrage desks and whales, retail traders might find them difficult due to their settlement date and price difference from spot market. These quarterly contracts have one advantage: they don’t have a fluctuating funding fee.
Fixed-month instruments trade at a slight premium to spot market prices. This indicates that sellers are asking for more money to delay settlement. Futures should be traded at a 5%- 15% annualized premium in markets that are healthy. This is called “contango”, and it is not only for crypto markets.
Bitcoin and Ether futures base. Source: Laevitas.ch
Comparing both charts shows that Bitcoin futures trade at an annualized premium of 2.6% for March 2022, and 4.4% in June 2022. This is compared to Ether’s 2.9% & 5%, respectively. It is clear that arbitrage desks and whales demand a higher premium for Ether, which is a bullish indicator.
Bitcoin’s long-to-short ratio declined
Investors should track the long-to-short ratio of top crypto traders at major exchanges to measure their professional trading position. This metric gives traders a wider view of their net position through the collection of data from multiple markets.
Because there are many ways to measure clients’ net exposure, it is important to note that different exchanges collect data on top traders in different ways. Comparisons between providers should therefore be based on percentage changes and not absolute numbers.
Bitcoin traders are the best in long-to-short ratio. Source: Coinglass
Current average long-to-short ratio of top Bitcoin traders is 1.21, down from 1.39 Dec. 5. This is 24% less than the 1.59 ratio from two weeks ago. The absolute number is less important than the change over time.
The long-to-short ratio of Ether’s top traders is 1. Source: Coinglass
The sentiment of Ether whales, arbitrage desks, and Ether traders showed a positive change since Dec. 5, when the long-toshort dropped to 1.16 from 1.01. Comparing the average data for Nov. 25, top Ether traders have seen their long-to-short drop by 20% to 1.43.
Data shows that Ether traders are more optimistic than Bitcoin traders
The current derivatives data favor Ether due to the asset’s higher futures basis rates. The improvement in the long-to-short of the top traders since Oct. 5, signals confidence at a delicate time when ETH prices are down 16% from their $4,870 high.
Bitcoin investors might be feeling a little unsure as the price of Bitcoin is 31% lower than its Nov. 10 all-time high of $69,000. It’s impossible to determine if this is a cause and effect. However, the futures premium and short-to-short data suggest that Ether has enough momentum to continue outperforming.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.